George Will Disses the Prius, Obama and the Facts

On This Week with George Stephanopoulos yesterday, conservative columnist George Will commented on President Obama's emphasis on green cars, now that the White House is arguably a co-owner of Chrysler and is running GM, and claimed that the Prius is only successful because it doesn't make any profits:

[The Prius is] affordable because Toyota sells it at a loss, and it can afford to sell it at a loss because it is selling twice as many gas-guzzling pickup trucks of the sort our president detests. So as an auto executive, he's off to a rocky start.

But that's not true. By George, Toyota and independent analysts say the Prius is a money maker for Toyota, and it has been since 2001. Hybrids Generate $3,100 in Profits As we noted last week, Toyota and Honda, though both struggling in the recession, are making about ¥300,000 (US$3,100) on each hybrid they sell, a number similar to what they are making on gasoline-only cars, according to Japan's Nikkei. The Nikkei adds that "Toyota appears to have earned gross profits of around ¥100 billion yen (US$1 billion) on its sales of second-generation Prius hybrids last year." And in spite of the recession, pre-orders are rolling in for the third generation, solar-roof-optional, 50-MPG 2010 Prius hybrid.

Last year, ToMoCo Vice Chairman Kazuo Okamoto told Automotive News how the company had cut costs.

We reduced costs of hybrid systems for the current Prius by 50 percent from the first generation. For the next-generation Prius, we will be able to cut costs by another half, so I think we've been able to ensure profitability will be similar to regular vehicles, such as the Corolla.

For years, the research and development costs that Toyota poured into its flagship hybrid car had kept it from earning true profits, something that it sought to quietly play down. While the company still doesn't reveal exact figures, financial analysts have backed up the company's claims.

It's no secret that hybrid cars require hefty investments in R&D; (Toyota spent an estimated $1 billion, reports Fortune), and with those costs factored in, the Prius may still look bad on a spreadsheet.

But without such serious fixed costs and the sales of certain products at a loss, companies would find it hard to innovate. As Mike pointed out recently, "since [R&D;] can be spread over many vehicles, over a long period of time, and since it can help automakers future-proof (a lot of hybrid tech will probably be useful in plug-in hybrids and electric cars), it would probably cost more not to make those investments."

puts the Insight on a par with a Fit compact in terms of profitability per vehicle. Of course, that's much less profit per car than it gets from selling an Accord or an Acura but, with Honda aiming for 200,000 Insight sales a year, it at least helps shore up finances in these difficult times...

Also of note is that the new Prius may be less profitable than its smaller rival. The Nikkei adds that the gross profit margin on the latest Prius, which goes on sale in Japan in May from as little as $21,000, is likely to be in single digits this year.

Ultimately, the Japanese automakers profits from hybrid cars can't be completely verified. But that doesn't mean they aren't making profits -- and evidence suggests they are, and increasingly so.

Government Backing?Alongside the continuing claims about Prius profits, there have also been persistent rumors that research for the Prius and other Japanese hybrids was funded by the Japanese government.

That claim was apparently confirmed by former Toyota VP Jim Press last year, who said that the government paid for 100% of the research into the Prius during the 1990s. Curiously (and now, ironically), Press made the statement shortly after becoming president of Chrysler, and was contradicting sworn testimony he had once given to Congress that Toyota had never benefited from government investments.

Toyota shot back: "I can say 100 percent that Toyota received absolutely no support — no money, no grants — from the Japanese government for the development of the Prius," company spokesman Paul Nolasco told The Detroit News.

But let's assume the Japanese government had in fact helped fund the Prius, giving it an apparent advantage over US automakers. Now that the US government has had to get into the auto business -- at least temporarily -- government investments in green cars doesn't sound so wild or unfair after all.

In fact, as Hybrid Cars notes, the U.S. government has invested in hybrids: under the Clinton Administration's Partnership for a New Generation of Vehicles, it spent more than a billion dollars to produce three 80-mpg hybrid prototypes, including the Chrysler ESX. (None of the cars ever entered production.) Today taxpayers still support hybrid R&D; through the U.S. Advanced Battery Consortium -- and, of course, through all the government's bailouts for Detroit.

Now, more than ever, encouraging greener automobiles must be the U.S. government's job, says the White House. That was the point Obama made during a recent press conference, in a statement that sparked George Will's comment:

OBAMA: I don't want to run auto companies. I don't want to run banks. I've got two wars I've got to run already. But I know that if the Japanese can design an affordable, well-designed hybrid, then doggone it, the American people should be able to do the same. So my job is to ask the auto industry, why is it you guys can't do this?

But Will's most prominent fight has been his refusal of manmade climate change, against the findings of scientists and the assertions of the editorial page of his newspaper, the Washington Post. But like his assertions on climate change, his offhanded comment about the Prius is more than inaccurate. Given the need for US automakers to get with the programon innovation, comments like his sound strangely defeatist too.

Because doggone it, if the Japanese can design an affordable, well-designed hybrid, the American people should be able to do the same.